Grafton sues developer of Hilltop Farms

Friday

Mar 30, 2012 at 6:00 AMMar 30, 2012 at 3:15 PM

By Susan Spencer TELEGRAM & GAZETTE STAFF

Town officials are seeking $51 million in damages from developers of Hilltop Farms, a 256-unit affordable town house condominium development, for allegedly hiding $17 million in excess profits that should have been paid to the town under the state Chapter 40B comprehensive permit law.

The complaint, filed Feb. 17 in Worcester Superior Court, was moved last week to U.S. District Court in Boston.

According to the town’s complaint, Hilltop Farms Development LLC and its parent company, Pulte Homes of New England LLC of Bloomfield Hills, Mich., violated the regulatory agreement dated June 28, 2004, between the developer and Salem Five Cents Savings Bank, which under the state affordable housing law capped allowable profit at 20 percent of the total development cost. Any profits above the cap were to be paid to the town’s affordable housing trust fund.

Sixty-four homes, or 25 percent of the total housing units in Hilltop Farms off Milford Road, were targeted for buyers with incomes no higher than 80 percent of the local area median income.

“This was a give-and-take,” said Special Town Counsel Daniel C. Hill. He said the developer received significant waivers from the regular permit process in return for developing affordable housing and it was required to comply with the agreement surrounding that process. Mr. Hill said the developer still earned $2.6 million in allowable profit.

A two-year investigation by the state inspector general, summarized in a report filed with selectmen in November, identified at least $8.5 million in excess profits, if calculated according to the state cost certification process. The report contends that if the developer calculated its costs according to the methodology in place when the regulatory agreement was signed with the bank, it would have $17 million in excess profits.

Either way, the inspector general said the developer selectively picked which accounting mechanism to apply in different circumstances.

“Pulte’s maverick approach to the project’s accounting facilitated the shielding of significant excess profits from the Town of Grafton and instead directed all these excess profits to Pulte’s owner and management,” the inspector general’s report states.

Mr. Hill said the town is treating the violation as a breach of contract: Under contract law, the regulatory agreement’s formula in place when the contract was signed — which resulted in a purported $17 million excess profit — would be the appropriate measure.

The town alleges that Hilltop and Pulte inflated its land acquisition cost in the cost statement, claiming a $7.8 million expense despite paying $900,000 for the land. The inspector general, using current guidelines, recorded an adjustment of $6.9 million.

In another instance, the inspector general discovered that the developer recorded more than $800,000 in expenses without corresponding cash disbursements, which goes against generally accepted accounting principles.

In a prepared response, the developer wrote, “PulteGroup is deeply disappointed by the actions of the Town of Grafton and the report by the Massachusetts Inspector General. We strongly disagree with their claims and will legally fight such claims.

“PulteGroup, through its subsidiary Hilltop Farms Development, LLC, worked closely with the Town of Grafton to reach a Regulatory Agreement and to obtain all required permits and approvals to enable the development of the Hilltop Farms community. That Regulatory Agreement and all permits and approvals were closely adhered to by the parties.”

PulteGroup said its response to the inspector general’s report can be found on the IG’s website” at www.mass.gov.